On Tuesday, May 3, 2016, the New York Court of Appeals held that each of several excess liability insurers can be wholly responsible for the entire extent of their policyholders’ asbestos liabilities. The Court further held that “vertical” exhaustion would apply; rejecting the insurers’ attempt to apply “horizontal” exhaustion before upper-layer policies must respond. The decision, in In the Matter of Viking Pump, Inc. and Warren Pumps, LLC, Insurance Appeals, comes in response to two questions certified from the Delaware Supreme Court:
- Under New York law, is the proper method of allocation to be used all sums or pro rata when there are non-cumulation and prior insurance provisions?
- Given the Court’s answer to Question # 1, under New York law and based on the policy language at issue here, when the underlying primary and umbrella insurance in the same policy period has been exhausted, does vertical or horizontal exhaustion apply to determine when a policyholder may access its excess insurance?”
The Court answered the first question in favor of an “all sums” allocation, finding that the non-cumulation clauses in the policies at issue would be inconsistent with a pro-rata allocation method.
The Court answered the second question in favor of “vertical” exhaustion, finding that, under New York law, “other insurance” clauses in the policies at issue are not implicated in situations involving successive – as opposed to concurrent – insurance policies. Thus, the Court rejected the excess insurers’ contention that successive policies should share in the liability simply because they provide “other valid and collectible insurance.” As the Court explained based on its own prior rulings, “other insurance” clauses “apply when two or more policies provide coverage during the same period, and they serve to prevent multiple recoveries from such policies,” and that such clauses “have nothing to do” with “whether any coverage potentially exist[s] at all among certain high-level policies that were in force during successive years”